Summer time is vacation
time. Like many employers, you probably
offer some sort of vacation benefits to your employees. While such benefits are universally
appreciated by employees, employers can run into trouble if the rules regarding
vacation pay are not properly followed.
This article will explore the ins and outs of vacation pay in California.
Vacation pay is a form
of wages
There is no requirement that
employers provide vacation pay, but if this benefit is offered, it must comply
with numerous rules. Vacation pay is contract between the employee and the
employer; it is a form of wages.
Employers can set the amount of vacation that an employee earns. However, employers must be clear about how
much vacation is offered, how it accrues, and when it starts to accrue. It is legal to require that a certain period
of time pass before an employee starts to accrue vacation.
Because vacation is a form of
wages, the right to vacation accrues on a daily basis. Employers are free to require that employees
take vacation only when they have already accrued or earned it.
Avoid use-it-or-lose it
vacation policies
Once an employee has earned
vacation, an employer cannot take it away.
California
law strictly prohibits Use-It-Or-Lose-It vacation policies, i.e. where an employee loses accrued vacation that
has not been used by a specific time.
However, as shown below, reasonable caps on vacation and cash-out
policies are allowed.
A reasonable cap on
vacation is legal
Employers can establish a
reasonable cap plan, meaning that once a certain level of accrued vacation is
earned but not taken by the employee, no new vacation will accrue until some of
the accrued vacation is taken. Once some
vacation is taken by employee, vacation must continue to accrue again at the
regular rate.
The cap on vacation must be
reasonable. The most common caps used by
employers are one-and-one-half or two times the annual accrual rate. For example, if an employee earns 40 hours of
vacation per year, a reasonable cap would be 60 hours or 80.
Cash-out policies are
also legal
Employers are also free to
offer employees the option to cash-out their accrued vacation benefits. Cash-out policies can be on an “as needed”
basis or allowed only once a month or once a year. Many employers require employees to accept
pay at the end of each year for vacation time that
employees accrued but did not
take.
Vacation must be paid
at termination
Because accrued vacation is a
form of wages, an employer must pay out all accrued, unused vacation at the
termination of the employment relationship.
This pay-out must be at the employee’s final rate of pay, regardless of
the rate of pay at which the vacation time was earned.
